Farcical environment between Greeks and creditors

The Day So Far

Cautious trading so far today, following yesterday’s strong reversal after the creditors rejected the Greek proposal. Further late-night talks ended without any breakthrough. Ominously, ahead of this afternoon’s critical Eurogroup meeting, one official involved in the talks commented “The Greeks didn’t move at all. The level of frustration is so high. I don’t see a deal. It’s looking pretty grim right now.’” This morning’s meeting between Tsipras and the Greek creditors ended without an agreement, with considerable cracks appearing between the creditors themselves, with the IMF pushing for a complete revision of the Greek proposal with a focus on less taxes and more reduction in Government spending. Tsipras, for his part, would like any agreement to include debt relief and a ring-fencing of pensions, which have felt the brunt of the budget cuts in recent years. Neither one of these has been forthcoming, and so now, with the unsuccessful conclusion to initial talks between Tsipras and the creditors, the creditors themselves will prepare a set of proposals to present at the EU leaders summit kicking off at 13:30 today.

The Afternoon View

We move into the afternoon session in an environment which is somewhat farcical, with claim and counter-claim between the Greeks and the creditors. What we do know is that there was no agreement this morning and a lot now hangs on this Eurogroup meeting today. Needless to say, expectations are not high. Greece and the creditors are set to present two separate proposals at the meeting which will be up for discussion. A failure to reach an agreement today will almost certainly result in Greece defaulting on its payments to the IMF and being forced to leave the monetary union. As such, we maintain a bearish outlook throughout the afternoon, looking for longs in t notes and short equities. The euro has been such a difficult product to trade on the Greek headline risk, initially falling on negative news flow before retracing, however, we are short versus the dollar, particularly if crude continues to sell off , trading around the $60 handle as we move into the afternoon session.